Inflation is slowing and job growth has surged, but many Americans still feel the burden of expensive housing – fueled in part by high demand, low inventory and mortgage rates.
Home prices across the U.S. rose 5.5% over the past year in December 2023 and they are projected to increase 2.8% year over year by December 2024, according to CoreLogic, a consumer and business information company. None of the states in CoreLogic’s data showed home price declines.
Rents shot up 23.9% between the beginning of 2020 and the start of of 2023 and home prices rose 37.5% according to Harvard University’s Joint Center for Housing Studies’ 2023 state of the nation’s housing report. The median sales price of a home sold in the U.S. is $417,700, according to the St. Louis Fed.
Given the state of housing affordability in the U.S., here’s what to know about ongoing construction shortages, high interest rates, where housing prices are climbing, and what policymakers could do about it.
How did the housing market get this way?
Much of the current predicament renters and homebuyers face is linked to high housing demand, low housing inventory and the Fed’s cycle of hiking interest rates.
Very low mortgage rates – January 2021 saw the lowest recorded mortgage rate at 2.65% – fueled demand but drove up prices, exacerbated by low housing inventory, Matthew Walsh, economist at Moody’s Analytics explained. The Federal Reserve then raised interest rates in 2022 to combat inflation, which in turn influenced mortgage rates.
Those rates reached near 8% in October, and higher rates put constraints on housing supply, with more homeowners staying put. It’s now 6.77% for a 30- …
